Should you borrow against your home?

You could have thousands locked up in the value of your home. Is borrowing against your home sensible or something to avoid at all costs?

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Should you get a loan against your property? 

If you need to release money from your property, you might want to consider a homeowner loan. This can free up funds for projects such as home improvements, or even to help a child get on the property ladder. The loan is secured, which also means you may get a better rate than with other types of credit. It also means you are more likely to be accepted if you have a lower credit rating.

However, homeowner loans can be risky because you’re putting your property up as collateral. That means that if you fail to make repayments on time, you could lose your home. The term is typically longer than with unsecured borrowing, which means lower repayments each month, but more paid in interest overall.

Read on to learn more about secured loans and how to work out whether it’s the right choice for your circumstances.

What is a secured loan?  

A secured loan is when you borrow money and put an asset up as collateral. The most common option is to secure the loan on your property, but people also use things like jewellery and cars.

If you take out a loan on your house, it is also often called a homeowner loan. There are several advantages to borrowing this way. Lenders will typically offer you a higher loan amount and at a lower interest rate, when compared to unsecured borrowing. But there are risks too. When you take out a secured loan, failure to make repayments in full and on time could mean the lender repossesses your asset. If you offered up your property, you could be left homeless.

Failure to make repayments will also negatively impact your credit rating. This will mean you get worse deals on credit cards, loans and mortgages in the future, and could even find that mainstream lenders won’t let you borrow from them.

A secured loan might be right for you if:

  • You have a decent amount of equity in your property

  • You can easily afford the loan repayments

  • You get a better rate than you’d be offered with other forms of credit

  • You need to borrow a larger amount of cash

  • You want to make home improvements or invest in a new property

How do loans against property work? 

There are plenty of reasons you might want to take out a secured loan, for instance, if you can’t get a personal loan, if you’re planning to renovate your property, if you want to consolidate debts, or if you need to access a larger sum of money.

However, some experts say you should only consider taking out a secured loan if you’ll use it to increase the value of your property. That’s because there are risks involved with a secured loan, with the main one being that you could lose your house. They also tend to be longer term, which means your monthly payments are lower, but you’ll pay more in interest overall. 

If you’ve decided to take out a homeowner loan, you might want to start by approaching your current mortgage provider. This will give a benchmark to compare other providers against. Some even offer preferential rates for existing customers. 

Next, use our comparison tool to see what other deals are available. Make sure you look at interest rates, the term (length of the loan), any set up fees and charges, as well as what happens if you miss a repayment. When comparing lenders, look for quotation searches or soft searches as these won’t affect your credit rating.

Once you’ve taken out a secured loan, it works much like any other form of borrowing. You’ll have monthly repayments with interest attached. Lots of providers offer variable rates, which means payments go up and down.

If you miss repayments, it can affect your credit rating. You could also lose the property the loan is secured against.

Can I borrow against my house? 

Whether you can borrow against your home will depend on several factors, including your income, your credit rating, and how much equity is in the property.

The lender will usually ask you a series of questions. These include things like your name, date of birth, marital status and address history, but also financial factors such as other debts or commitments, how much you earn and your living costs.

The lender will assess your creditworthiness to decide if you’re eligible for the loan.  As well as your application details, they’ll usually also look at your credit file. 

There are three main options for borrowing against your home. These are: 

  • A secured loan: A loan that is secured against the value of an asset, usually your property. You can compare secured loan rates here.

  • A further advance: This lets you take on more borrowing from your existing mortgage lender. The rate is usually different to your main mortgage, but the additional funds are secured against the value of your home.

  • Remortgaging: If you're eligible, you can remortgage to raise some cash by borrowing more money than you owe on your home. But keep in mind all the fees involved to see if it really is cheaper than other forms of borrowing.

Need help finding a secure loan?

Should you borrow against your home? 

The main advantages of homeowner loans are that providers will usually offer large sums of money, often at a lower rate and for longer terms that with other sorts of lending.

This is because the lender has an asset they can reclaim if you fail to pay what you owe.

However, this means that these loans are also inherently risky, because they put your property at risk. 

By offering your home as security you are giving the lender a legal claim to your home should you be unable to repay your borrowing for any reason at a later date.

This means that if you fail to keep to the agreed repayment plan, the lender could repossess your property or force the sale of your home in lieu of repayment.

You should only really consider this type of lending, once you have explored all the alternatives and if you are certain you can afford the repayments.

Make sure you think about what would happen if you lost your job or became too unwell to work.

You should never borrow money against your home to pay off existing debt. Here is how to pay off your debts.

How much can I borrow against my home?

It’s difficult to give an exact figure, since how much you can borrow will depend on the value of your home, how much equity you have, your salary and your credit rating. Other factors may also be considered such as existing debts, financial commitments such as school fees, and the loan to value ratio.

Speaking to a lender or mortgage broker is the best way to find out what you can borrow. 

What are the alternatives to getting a loan against your property?

There are several options you should consider before committing to a homeowner loan. These are:

  • Unsecured home improvement loan  Some lenders offer larger unsecured loans if you use them to make home improvements. The advantages of an unsecured loan is that you’re unlikely to lose your home if you can’t repay. However, you might not be offered as much money – and interest rates may be higher.

  • Social loan Where you borrow from other savers online. Peer to peer loans often have low interest rates because their lending costs are smaller than traditional lenders. However, they tend to be less quick, and you typically won’t be able to borrow as much.

  • Credit card f you want a more flexible way to borrow, then a credit card could be an option. You can check our credit card comparison to see whether any of the cards available suit your requirements. 0% cards allow you to borrow interest free, which is a great way to spread the cost of purchases. However, credit cards usually have a much lower limit than a secured loan.

  • Remortgaging  This is often cheaper than a secured loan. However, it will impact your Loan To Value ratio, which means your mortgage interest payments may rise. You will also be limited in terms of what you can borrow.

Borrowing against your home FAQs

Do you need income protection insurance?

If you increase the borrowing secured against your home it is worth thinking about insuring your income.

Income protection is especially important if you would struggle to repay your existing mortgage, bills and your new loan if you lost your job.

Compare income protection policies here

Can you get a secured loan with poor credit?

If you have a poor credit record and are unable to secure a standard personal loan you may have more success applying for a secured loan. That’s because homeowner loans are viewed as being less risky by the lender, as if you default they could reclaim the outstanding debt from your property. However, you should think carefully before putting your property at risk by applying for a secured loan or taking out a further advance on your mortgage. Additionally, if you have a poor credit rating, the cost of your borrowing is likely to be high, even if you are securing the loan against your home.

What’s the best way to borrow money against your home?

This depends on what you need the money for, how much you want to borrow, and the interest rates on offer. Make sure you consider all the alternatives outlined above before taking out a homeowner loan. Speak to a broker to help you find the best options for your needs.

Do homeowner loans affect my credit score?

All borrowing affects your credit rating. If you apply for too many homeowner loans in quick succession, you could cause your credit rating to drop. Equally, if you miss repayments, then you’re likely to see your score fall. However, if you repay your loan in full and on time, your score is likely to remain stable or even increase.

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